Test Your Investing Expertise With Quick Quiz On Mutual Funds

YOUR MONEY - MUTUAL FUNDS

If you play the mutual fund game, it helps to know the rules. But many investors are faking it.

To help you pick up on some of the small details, here is a quiz on some of the basic concepts fund investors should know.

1) True or false: When a mutual-fund portfolio manager quits, the fund company must immediately notify shareholders.

2) True or false: A diversified mutual fund cannot invest more than 5 percent of its assets in any one stock.

3) True or false: A mutual fund is considered diversified once it owns 16 stocks.

4) Say you own the ABC Technology fund. How much of the fund's portfolio must be invested in technology issues? a) 100 percent, b) 75 percent, c) 65 percent, d) 25 percent.

5) Your fund wants to change investment styles and policies. Does it need your approval to make the change?

6) You own a general equity fund - say, the XYZ Growth fund. What percentage of the fund's assets can be concentrated in any one sector or specialty, such as biotechnology stocks? a) 10 percent, b) 25 percent, c) 50 percent, d) unlimited.

1) False. As important as managers are to your decision to buy and hold a fund, there is no rule requiring immediate notification of shareholders.

2) False. By rule, a fund cannot put more than 5 percent of its assets in one stock, but that rule applies to just 75 percent of the fund's holdings.

3) True. Picking up where the last question left off, assume 25 percent of the portfolio goes into one stock. If the remaining assets were divided evenly, you would have 15 holdings, each with 5 percent of the fund's assets. That gives you a minimum 16 issues in a diversified fund.

4) c. Unless a fund's prospectus sets a higher standard, just 65 percent of assets must be held in the sector or specialty for which it is named.

5) Maybe. It depends on the rules of the fund. Only ``fundamental'' issues require shareholder approval, and many funds are writing or changing prospectuses so that investment policy is considered nonfundamental.

6) d. Unless constrained by a prospectus a broad-based fund can go wherever the manager leads it, so long as it is still pursuing its stated investment goal.

7) f. ``No-load'' refers to sales charges. Fees for closing accounts, dumping them too soon, falling below minimum account size, or management of the fund have no bearing on the load. The 12b-1 fee, which is for sales and marketing of the fund, is trickier. But as long as this fee does not exceed 0.25 percent, a fund still can be described as no-load.

8) False. It depends on where the fund company is incorporated. Most funds are set up in states that do not require annual meetings. Next week: Bone up for Part II of the quiz.